Piramal Finance (NSE:PIRAMALFIN) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY twenty twenty seven Earnings Conference Call hosted by Piramal Finance Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. The result materials are available on the exchange and the company's website, and you may refer to them during the discussion. Please note that today's discussion may include certain forward looking statements, which must be viewed in conjunction with the company's risk and uncertainties for the company's basis.

0:52 These statements are based on the management's current expectations and are subject to uncertainty and change. On the call today, we have with us mister Piramal, chairman mister MD and CEO mister group president, mister CEO, wholesale lending, mister CFO, and mister Ravi Singh, head IR and strategy. I now hand the conference over to mister for his comments. Thank you. Han, over to you, sir. Good afternoon, everyone, and thank you for joining us today on this call to discuss Q2 FY 'twenty seven results of Piramal Finance.

1:40 I hope you and your families are enjoying the ongoing festive season, and I wish you all happiness and prosperity. An important announcement before we get into q two results discussion. I'm delighted to welcome mister Dinesh Kumar Khara, who joins today as an independent director for a five year term. Mr. Khara has been one of the most respected CEOs in the financial services sector. During his tenure, the market cap of SBI moved from $20,000,000,000 to $90,000,000,000 at a CAGR of 47%. During his career, particularly as chairman of SBI, he strengthened one of India's most important financial institutions and expanded access to formal banking and credit for millions of Indians.

2:40 His experience, judgment, and deep understanding of financial services will be invaluable, and we look forward to his counsel and guidance. With that, let me now begin with a few observations on the macroeconomic environment and take you through our performance during the quarter. India's financial sector has remained resilient and geopolitical upheavals, MBSE gross NPLs have declined significantly over the last few years alongside robust credit growth, particularly among upper level upper layer institutions. This resilience reflects the strength of the broader Indian economy.

3:28 International institutions like IMF have revised India's GDP growth projections for for FY twenty seven and FY twenty eight upwards, supported by robust consumption, capital expenditure, and stable ForEx results. However, rising global inflation will exert pressure on India's cost of capital. H2 FY twenty seven is likely to see a broad based increase in borrowing costs in line with the RBI shift from a neutral stance to calibrated tightening. Nevertheless, we do not expect any notable slowdown in borrowing activity with liquidity conditions remaining adequate.

4:19 Emerging global risks were in close monitoring, particularly rising U. S. And Japanese sovereign bond yields and the prospect of crude oil prices remaining high for longer, which could amplify inflationary pressures and tighten global financial conditions. Moving on to our company's Q2 performance. Our growth AUM now stands at 98.5% of total AUM. In Q2, growth AUM increased by a healthy 30% year on year. Total AUM grew by 24% year on year to INR 113,112 crores.

5:09 Q2 FY 'twenty seven RO AUM of growth business was at 2% annualized, 34 bps higher than 1.7 ROAUN in Q2 FY 'twenty six. In Q2 FY 'twenty seven, APAC was up 67% year on year to INR545 crores with underlying growing underlying growth business, PBT, of INR538 crores. Thus, our H1 FY 'twenty seven pack is also up 67% year on year and crossed the INR 1,000 crore mark. Asset quality was stable and healthy across both our retail and wholesale businesses, and we share more details later on this call.

6:04 In Q2, we completed a total equity fund raise of 3,850 crores, including a QIP of INR 2,100 crores and preferential allotment of warrants of INR $17.50 crores to the promoter group. This was our first fund raise as Piramal Finance and we are encouraged to see the response to QIP in terms of demand from investors and eventually but an eventual participation of several marquee domestic and international investors. In September, we completed five years since the merger of DHFL in September 2021.

6:53 In every possible way, this merger has proven to be transformational one for the company. It provides us a platform on which we could steadily build up further. The acquired product suite of mortgages and real estate lending has expanded to more than 10 key product categories diversified across secured and unsecured retail and mid market corporate lending. In five years, post the merger, our branch network and employee base has further grown by three x, while AUM have grown five x in five years from 23,000 crores to 1.1 lakh crores for the growth business, making us one of the fastest growing retail finance stories in the country.

7:48 While a large part of what we recorded on day one of the merged balance sheet has naturally run down. Imprint of this arguably is the most consequential adverse mergers of India is visible across our businesses, balance sheet and P and L. In these years, we made gains of more than INR 3,000 crores from DHFL's stress book. The large pool of long term low cost fixed rate borrowing rolled over from us while DHFL continues to support our liabilities base. There is a tax shield of INR 16,000 crores of assessed carry forward losses, mostly arising from DHFL still available to us.

8:37 As the youngest NBSC among India's upper layer NBSCs, we are privileged to be serving over 6,500,000 customers across semi urban India, combining physical distribution with technology and AI in our processes. With a AA plus rating and demonstrated retail led diversified business model at scale, we're confident in our ability, to deliver steady and healthy earnings growth. With that, I'll hand over to Jairam to share more details on the results. Thank you, Anand. Good afternoon, everyone. I will begin by providing some details on our performance for the quarter, our progress against strategic priorities and some special topical matters for this quarter.

9:27 Let's start with growth on Slide number four. At the start of the year, we had guided for a 25% AUM growth in financial year 'twenty seven. Over the medium term as well, we expect our AUM to double every three years, implying an AUM of 1.5 lakh crores by FY 'twenty eight. Against these aspirations, in Q2 FY 'twenty seven, our AUM was up 24% year on year to INR 113,112 crores. Growth AUM was up 30% year on year, while the legacy book came down by 69% year on year. With our growth AUM at 98.5% of the total AUM now and scaling up at 30 plus percent year on year for the past several quarters, we remain on track for our FY 'twenty seven and FY 'twenty eight AUM growth expectations.

10:31 Our Retail AUM growth remains strong. The strong pickup seen in Q1 and disbursement growth continued to get even stronger in Q2. Disbursements were up 34% year on year in the second quarter. Retail AUM grew by 30% year on year to INR 97,462 crores. Our mortgage business comprising housing loans and loan against property grew by 27% year on year to INR 64,650 crores. Mortgages account for 57% of the company's AUM. If you look at Slide 25, which has product level details, you will note that there are substantially higher growth rates that are visible for mass affluent housing loans and larger ticket lab plus business within our HL and lab books.

11:29 With our rating upgrade, our ability to serve these segments is significantly higher. With risk performance under control, AUM growth in our four unsecured product categories, personal loans, unsecured business loans, digital loans and rural micro loans, all gained momentum. These AUM were up 46% year on year to INR 23,764 crores and now form 21% of the company's AUM. If you look at Slide 31, you will see that our customer franchise grew by 26% year on year to INR 6,500,000. With the uptick in unsecured disbursements, both our overall customer franchise and our cross sell franchise growth have been improving.

12:23 Our sourcing from cross sell in unsecured disbursements was at 30%, which we expect to keep improving over the coming years. Our cross sell portfolio, of course, comes with significantly lower OpEx and credit risk. In the second quarter, we did not add any full service urban branch. We did instead expand our network for gold loans and rural loans. The gold loans network expanded to 100 branches from 67 in the previous quarter, and we aim to have 200 gold loan branches by the end of March twenty twenty seven. On the rural side, we expanded from 178 branches last quarter to two zero three branches by the end of this quarter.

13:12 The company's total branch network now stands at INR $8.38. Wholesale AUM was up 24% year on year in the second quarter to INR 13,978 crores. The mix between real estate and mid market lending stands at INR 60 eight-thirty 2. Moving on from growth towards profitability. I'd like to start from Slide five. Return on AUM for our growth business increased to 2% per annum in the second quarter versus 1.7% in Q2 FY 'twenty six. Leverage, I. E, AUM to equity, was at 3.6x in the second quarter compared to 3.7x in the first quarter.

14:05 In the second quarter, of course, we completed a capital raise that Anand mentioned. We have structured the raise in a manner so as not to take a very large hit on leverage in that quarter. With continued AUM growth, leverage should continue to progress towards our goal of 4.5x to 5x in the medium term. Let's go now into some of the components of our return on AUM, starting with margins. The company's net income margin was flat quarter on quarter at 6.5%, which you can see on Slide 15. This is very close to the level for our overall growth book net interest margin at 6.8%. And of course, it will get closer still as the legacy book goes off our portfolio.

14:56 Cost of borrowing. Of course, a lot of attention has been placed justifiably on the liability side of NBFC books. I'd like to draw your attention to Slides 16, seventeen and eighteen for a discussion on our cost of borrowing. Our incremental cost of borrowing at Piramal Finance continues to decline steadily. Following our domestic rating upgrades to AA plus between January and March 2026, cost of incremental long term borrowing has declined from 9.36% in H1 FY 'twenty six to 8.67% in H2 and further to 8.46% in H1 FY 'twenty seven.

15:46 We have roughly INR 37,500 crores of long term borrowings, which are due for maturity in the next eighteen months. If you look at Slide 17, the bottom left chart shows that our current incremental cost of borrowing is meaningfully lower than the carrying cost of these borrowings that are going to mature and retire over the next eighteen months. This continues to provide us a strong tailwind on the cost of borrowing side. Our market linked borrowings are less than onethree of our total borrowings. We also have variable rate liabilities, which are slightly lower than our total variable rate assets, as you can see in the top right chart of Slide 16.

16:39 This again positions us well in a rising rate environment. Despite the way market rates have moved in recent months and the RBI's recent and likely upcoming repo hikes, we believe that our overall cost of business at Piramal Finance on a stock basis will continue to be at similar or lower levels over the next twelve months Cost Cost of of borrowing, I'm sorry. Moving to Retail income, Slide 22. You'll see that total retail income was 14.6% of loans versus 14.7% in the first quarter. This is largely the small delta is largely driven by the higher number of days in the second quarter versus the first quarter.

17:26 Other income was stable Q o Q. If you recall, in Q1, we had made and disclosed a considered strategic choice to perform fewer debt assignment transactions, resulting in a reduction in our income line and an increase in ongoing annuity. Moving on to insurance. Following the September 23 consultation paper from IRDAI, we had disclosed on September 24 our initial assessment of how our insurance commission income is likely to be impacted. The company currently exclusively distributes life insurance products of Primerica Life Insurance, where we have 50% stake as a promoter.

18:16 If the consultation paper is implemented as it is, with an effective date of 04/01/2027, we estimate a gross reduction in insurance commission, potentially having 18 to 24 basis points of impact on FY 'twenty eight return on assets. However, that is at a gross level. Any improvement in economics of Pre America Life Insurance will flow back proportionately to Piramal Finance during consolidation. Thus, the company has a natural hedge and a clawback available in the way the company is structured. Apart from this, there are other levers that are available to the company as well. For instance, rationalization of sales incentives for selling of insurance and other forms of product clawbacks.

19:06 We believe this can significantly cushion the impact on profitability on a net basis in FY 'twenty eight and beyond. In the near term, the company remains confident of meeting all our earlier stated FY 'twenty seven profit growth guidances of 50% profit growth year on year. OpEx. Retail OpEx to AUM declined by five basis points on a quarter on quarter basis to 3.48. You will see this on Slide 22. You will notice that we have now consistently reduced our OpEx to AUM for almost four years. While we are now well in the target range of retail OpEx to AUM, the ratio continues to move downwards. The continued productivity gains for our employees and branches, we believe, have the potential to take Retail OpEx to AUM to further lower levels over FY 'twenty seven.

20:01 The reduction in Retail OpEx to AUM has driven growth business OpEx to AUM down 33 basis points year on year to 3.2. At a company level, our cost to income was 52% in the second quarter, down from 61% in the second quarter last year and 65% in second quarter of FY 'twenty five, as you will see on Slide 52. Tech and AI have been key enablers of both our growth and our productivity enhancements. Slides thirty three and thirty four show some details of our enterprise AI strategy, which we have called piramal.ai. On Slide 33, the dashboard that we regularly share shows progress of AI use cases across all aspects of our business, such as sales, underwriting, collections, audit and compliance, customer experience and people management.

20:58 Like every quarter, this quarter, we have put a spotlight on one area heavily impacted by AI and this time on Slide 34, we have covered customer experience, cx.ai. Most impactful use cases of AI in customer experience have been GenAI powered automation of routine service e mails, allowing human agents to focus more on cross sell to these customers, leading to a 5x increase in cross sell productivity of human agents versus what it looked like before AI took over e mail response. PIRA, our self-service AI assistant, interacts with customers across WhatsApp and Piramal's app, resulting in 6.3 lakh interactions in the second quarter for queries, payments and new loan offers.

21:48 PIRA also generated 20% of our total cross sell leads during the quarter. Our conversational AI part BOTS resulted in INR102 crores of PL cross sell in the second quarter and INR172 crores of end to end collections of overdue VMIs and fees in a human free manner. You can see how CX dot ai is boosting our productivity, digital engagement and cross sell. Moving to risk. Credit risk across the portfolio continued to see the strength that we witnessed in Q1. All risk metrics, both early and late, across both secured and unsecured, continue to look very strong. Our overall Retail 90 plus delinquency is at 0.7%, stable in a narrow range of 0.6% to 0.8% over the last four years.

22:41 Growth business credit cost was down by 10 bps quarter on quarter to 1.5%. Unsecured, in particular, shows risk at multiyear lows and delinquencies at onethree of peak levels. There are four additional dimensions, which I would like to share specific risk insights on. First, in the IT sector. In the last quarter, I had mentioned emerging risk challenges in home loans for IT sector customers from South India. That situation persists. The good news, however, is that it has not spread to other adjacent segments. The second is on the monsoon impact. The weak monsoon does not seem to have had a negative impact on agri income customers, at least so far. Bounce rate in this customer segment was the same as in the first quarter FY 'twenty seven and one hundred and ten basis points lower than the second quarter FY 'twenty six.

23:37 Leverage at the customer level. Overall leverage levels continue to be low. We had indeed seen some increase in leverage in digital lending business in Q4 and Q1, but that has subsided back down in the second quarter. As of this quarter, leverage of customers applying for loans from us is lower than it was two years ago in every single product category. The fourth dimension on which I want to add some risk insight is on gold loans. This is an important area of emerging risk in our mind, which is the rapidly increasing presence of gold loans on customer files. Two years ago, on our portfolio, depending on product, 20% to 25% of customers had an active gold loan outside.

24:25 That number is now above 35% in all product categories. Secondly, in financial year 'twenty six, across the industry, approximately INR 4.7 lakh crores of gold loan disbursements happened to customers in deep delinquency, I. E, more than ninety days past due. Today, presence of a gold loan on file is not yet an indicator of higher risk in the portfolio. However, we believe that these data points that I just shared are worth noting and tracking. Lastly, along with growth and profitability, we have been equally focused on predictability and consistency. If you look at Slide number six, our second quarter PAT of INR $5.45 crores has kept up the steady and predictable earnings trajectory of the last eight to ten quarters.

25:19 Our trailing twelve month EPS growth is currently running at 155% year on year. We disclosed long term four year plus quarterly data across most key parameters, showing the discipline and rigor that go into delivering predictability and consistency. Our risk charts, for example, cover both vertical and horizontal risk across the portfolio and across individual products for four plus years. With the transformation journey of last five years since the DHFL merger behind us, the recently concluded capital raise demonstrating the confidence of promoters and other investors and the strong performance in the first two quarters of financial year 'twenty seven, we remain confident of meeting our near term FY 'twenty seven and medium term guidance on growth, profitability and stability of earnings and risk performance.

26:08 With that, let me hand over the call to Yash to discuss our wholesale business. Thanks, J. R. A. Of September 2026, the wholesale book stood at INR13978 crore, which was a growth of 24% year on year. Real estate to CMML mix stood at INR6832 crores. Average ticket size of the book was INR55 crore and average yield of the portfolio was 14.1%. During the second quarter, we disbursed INR2615 crore across 91 separate transactions, including 41 new transactions and 50 transactions, which were sanctioned in the previous quarters, but were partly disclosed during this quarter. Prepayments continued to be elevated as we received INR $18.89 crore or about 72% of the disbursed amounts during the quarter.

27:02 Due to high rate of prepayments to date, about 74% of our contractual repayments due in FY twenty twenty seven have already been paid by our borrowers to us as of today. The strong prepayment trend continues as we have seen over the past few quarters as well and is proving to be a growth headwind for our wholesale business, but it also highlights robust portfolio performance. Separately, our legacy AUM decreased significantly by INR780 crore or 32% quarter on quarter, leading to an AUM of INR1673 crore, which is now just 1.5% of our total AUM as Jairamal already told you. With sharply falling share of legacy book, we expect to discontinue its separate disclosures after the December quarter.

27:51 The chunky reduction in legacy book in Q2 was PBT neutral. We carry ECL provision of $4.59 crore on the legacy book. With this, I'll hand over to Vikash to cover financials. Thank you, Yash. Moving to our financial performance. In Q2 FY twenty twenty seven, we reported consolidated net profit of INR $5.45 crore as against INR $3.27 crore in Q2 FY 'twenty six, which is up by 67% year on year. Pro form a PBT for growth business stood at $5.38 crore in Q2 FY 'twenty seven versus INR $3.44 crore in Q2 FY 'twenty six. The net income margin for company level is at 6.5%, which is up 35 basis points year on year and flat quarter on quarter.

28:43 Growth business NIM was 6.8% versus 6.9% in Q2 FY 'twenty six and six point eight percent in Q1 FY 'twenty seven. The capital raise in Q2 had a positive impact of five basis points on our NIM. Our total income thus grew 33% year on year to INR $17.67 crore. Operating expense growth was contained at 13% year on year. Pre provisioning operating profit thus grew by 64% year on year to INR $8.46 crore. Growth business credit cost was 1.5% versus 1.6 in Q1 FY 'twenty seven. In Q2, along with the reduction in legacy book, we had profit and loss gain of INR 90 crore from recovery in legacy business.

29:35 With this, company's overall credit cost was at 1.1% versus 1.8% in Q1 FY 'twenty seven. Our total GNPA and NNPA were at 2.41.7%, respectively. Our network stands at 31,180 crore. Our capital efficiency is at 20.1% at the end of September twenty twenty six. In Q2, the QIP added almost 200 basis points to our capital adequacy. It also had a positive impact of five bps on our RO AUM, and it led to reduction of just 0.18 in our Q2 end leverage. We are confident to stay comfortable on capital adequacy over next few years, while funding our growth and expanding the leverage.

30:26 As discussed in previous quarter, there are opportunity of non dilutive regulatory capital reaching our balance sheet, likely over next twelve to twenty four months. That combined with our recent capital raise implies enough runway for growth capital for some years. With these remarks, I would now like to open the floor for questions. Thank you. Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and then one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking your question.

31:12 Ladies and gentlemen, please wait for a moment while the question queue assembles. We have the first question from the line of Shreya Shivani from Nomura Securities. Please go ahead. Yeah. Thank you for the advice, J. D. I have two questions. First is on the cost of funds. Now that we are officially in the rate hike cycle, what is our view on what product segments will we be passing on the higher rates to our end customers?

31:59 When will we do it? Will we wait for another MPC before we take that decision? Any color around that would be helpful. My second question is on the yield movement. So there has been a significant sequential decline in the legacy book. However, the yields were sort of flattish between 1Q to 2Q. Is it fair to say that once it's completely out of the base from 3Q onwards, it will start showing up in the yields? Any thought process around that? And sorry, one more question. The third question is while your asset quality trends, which is Slide 23 is stable, but if you see the vintage risk, there is a slight pickup in probably the digital loans and the housing loans. I guess the housing loans probably is explained by the IT sector employees, if that's correct.

32:46 Any other color around that would be useful. Thank you. Perfect. Great question. Thank you, Shreya. Question number one, cost of funds and passing it on to customers. See, we unlike banks, NBFCs are on a PLR regime. So we will pass on rates when our PLRs increase, which will happen once our cost of borrowing falls. So essentially, we will wait for our cost of borrowing to fall, which will take a little bit of a lag. After that, there'll be a little bit of a lag before we pass it on to our customers. In the last cycle, we saw the lag impact on our cost of borrowing to be almost one year and then about a three months further lag for us to actually pass things on to our customers. 50% of our assets roughly are going to be of this variety where we can pass on mostly our own loans and loan against property customers. So I don't expect anything being passed on yet. We need to first see the impact on our cost of borrowing. If it starts increasing, then we will go ahead and increase rates.

33:47 Otherwise, you shouldn't expect to see much action on that front. Your second question was on risk, right? NIM, NIM. Okay, yields. And what happened to yields? And why did yields go up if legacy book came down? To some extent, your hypothesis is correct, but also there's a simpler explanation, which is more which is a simple technical explanation, which is that number of days in this quarter was higher by one day compared to the previous quarter. That takes away almost 11 basis points of yield if calculated for the retail business. And since mostly our book is retail, that shows us a compression in NIM, it's not real. So don't worry about it. It's just optical based on the number of days. Your third question was on risk.

34:34 And particularly, you spoke about... Sorry. Slide 24, vintage risk. Vintage risk. Vintage risk. Vintage risk, see, digital loans, there is nothing that's real. Like this is the Q4 was low. Otherwise, actually, there is nothing much there. The risk is looking very good. And by the way, in digital loans, 90 plus percent of our lending is on FLDG. So anyway, it's not credit risk on our book. Whatever increase happens here, unless we breach the 5%, it's basically on the partner's book, not on our book. So I'm not worried at all on the digital lending side. Your cash on housing loans is absolutely the right one. That is appropriate to look at. That is a real increase that has actually happened there. There is one big case. There is a 4 crore case from Q2 of FY twenty twenty six, which turned out to be fraudulent, which is there in that number. So that number has ticked up because of that one case. I expect that number to come back down in Q2 because we are seeing the Q2 numbers at the nine month level, they are looking a lot better. So I expect that, that number will come back down. But that one is a real uptick driven by one fraud case.

35:42 Right. That's useful. So on the commentary that you made on the loan that the gold loan disbursements are towards customers in deep 90 plus etcetera. Any thought process around your own strategy? Mean, how are you thinking about it about So your depending on how you count on a gross disbursement basis, anywhere from 15% to 22, 23% of gross disbursements in gold loans over the last year have happened to customers who are ninety days plus past due on at least one of their life traits. It's a shockingly high number. That number for Piramal for October so far is less than 1%. We do not reverse gold loans to customers who are more than ninety days past due. We just don't do it, even though that's almost onefive of the market today. So of course, we are a very, very, very strong player in gold loans.

36:35 We just started. So but we this is not an area where we are going to compromise. So it's less than 1% of our disbursements. Okay. This is perfect. Thank you and all the best. Thank you. Thank you, Shay. Thank you. The next question is from the line of Ramesh from ICIC Securities. Please go ahead. Yes. Hi, congrats team for the good set of numbers. So just two things, you know, again, on this vintage risk slide. So when we look at HLN Lab for, you know, both these segments, we have seen a very stock increase in 90 plus, you know, on sequential basis. So just to, you know, wanted to know what is happening here. I mean, I I heard you on this, you know, isolated issue on the actual side, but most specifically, last, you know, what is happening. And also when we look at the used car also, you know, there is some increase. So just wanted to understand, you know, why our new book asset quality is basically inferior to our period end book quality?

37:43 I'm not sure where... Like, see, if you look at page 24, you can see the small uptick in housing loans and kind of of in lap as well. Everything else is going down. So I... Like, overall, as you can see, the overall numbers are down, not up. So new business quality is all significantly better than it has been. Unless I understand Yes. Your So I will just maybe repeat my question. So sir, I'm referring to your Slide number 23. And in, you know, that's... After... In that slide, if we look at the used car loan, right, which is 5% of the book, there, last three quarters, our 90 plus is 1.2, which is flat.

38:29 Correct. But when we... When I look at the vintage risk slide, the same fee... I mean, the segment used car Yeah. There'll be... The 90 plus is actually running higher than the the book quality. I mean, the period end book. Yes. So I'm just wondering, does that mean the incremental business is being booked at interior 90 plus? Yes, yes, yes. No, no, I understand what you're saying. This is a different metric. So see, when you look at a full stock, what happens is you have clients who are zero days kind of zero months on book, one month, two months, three months, seven months, all the way to '9, 10, 11, 12 and then '23, '24, '25, etcetera. Twelve months are booked as above the peak of where risk is gonna be at its peak. Right? But the full portfolio, when you see it, it'll have both the peak as well as a bunch of non peak, you know, vintages out there. And hence, the portfolio numbers are gonna be lower than that because it's an average of many, many guys.

39:29 This metric, the horizontal metric, essentially just shows one vintage, one tranche and looks at them when their risk is likely to have peaked, which is around twelve month mark and says, okay, what is that peak of risk? Okay. Okay. Got it. So it's a bit... It's on a rolling basis. Right? It's on a rolling basis. Absolutely right. Okay. Got it. Got it. No. I I thought it was static for twelve months and not rolling. Thanks. But I understood completely, sir. Thank you so much. And, again, you know, going back to the same question what, you know, she has asked on the name side. Right? So, again, when we look at the growth business name, which is at the 6.8%, and when we look at the company name, it is 6.5%. And also, you know, as per our side, the more 51, the leadership book share is just one and a half percent.

40:17 So just wanted to know, you know, optically, maybe over the next two to three quarters, my your growth name should be the company name, which is obviously 30 basis point higher. So does that give you a natural hedge against the rising rate cycle and hence, you know, the... Despite the the rising rate, our name actually should expand from here on, the only reason being legacy book coming down. That is absolutely correct. Mathematically, that is bound to happen. Okay. Okay. Okay. Got it. So we are not too worried on the rising rate cycle? Not really. I mean, I don't want to be too cocky about this, but there is no in our business, there are two or three natural hedges that exists on this on the rate cycle. One is this legacy book, the other is our recent ratings and hence ratings upgrade and hence our incremental cost of borrowing being significantly lower than what our book is and what our retiring debt cost is.

41:17 These two things are material items, which provide a natural hedge against the rising rate cycle. Got it. Got it. And maybe just just last thing. So given, you know, we also heard one of the largest, you know, prime holding financials, including their PLL rate, you know, just in the month of October. And if if that happens, then is that upside risk to our name? Not really. See, I don't expect us to raise rate for customers. So it would be unfair for me to just pass on a rate increase to customers when I'm not seeing that rate increase. So customers Okay. Okay. Got it. This is very helpful and best of luck. Thank you. Thank you.

42:04 We have the next question from the line of Abhisheet Devdival from Motilal Oswal Financial Services. Please go ahead. Hi, sir. Yeah. Hi. Thank you for taking my question. So first, a clarification. If I look at our consolidated P and L, we had reported loan loss provisions and fair value loss in about three hundred crores. While if I look at our group business, there the credit goes up for the 400 crores. Correct. So just trying to understand, is there some write back from the legacy book or is it some other business subsidiary which is contributing to this? No no, it's all legacy book. Legacy book So, so, it's not write backs.

42:50 Exactly, the write backs that we come which we are using to create other buffers elsewhere. Got it. Fair enough. Second question that I had was around liability, while in the last two participants, you remember they were all asking about margins and how they could trend in a rising rate cycle. But I could also see one of your studies you have mentioned, we have about 29,000 crores of debt coming up for maturity next year. Correct. And which are at a higher rate than the incremental cost of borrowings. So even that should... At least that maturing debt should bring down your cost of borrowings because Absolutely. I I mean, irrespective of where your incremental is, there is also an improvement of Yeah. Yeah. So, my math will go straightforward, Abhijit. 9.1 debt maturity, 8.4 borrow maturity to my my gross cost of borrowing of the stock will come down.

43:57 Right. Got it. So this is also clear. And lastly, sir, now if I look at this quarter, have reported a 2% kind of our for our growth business. And we had given out an exit quarter target of about 2.5%. Yes. And the long term goal is to take it above 3%. Yes. So now with with the retail, already settling below 3.5, credit cost stable at 1.5%. What are going to be the key incremental levers to bridge this gap from current 2% to 3% over the over the longer term? Basically, what I'm trying to understand is how much of this improvement can come from operating leverage, margin expansion, product mix, credit costs?

44:43 Yes. So the big delta is comes in kind of comes under three heads. One is the mix shift away from legacy towards everything else. But let's keep that aside for a minute. Let us just look at the growth economics for a moment. Within growth economics, there are two big drivers. OpEx will continue to come down. We believe there's another 35 paisa that is possible over the next six quarters. And then there is cost of funds, cost of borrowing kind of resulting in cost of funds. And then there is the whole mix thing of us becoming more unsecured. You saw me comment earlier that we are 21% unsecured to date. We were 20%. Still two quarters ago, now we are 21%.

45:30 Eventually, we want to be 25%, 26% unsecured, right? So that delta will happen over the coming quarters, right, coming quarters and couple of years. So that will continue to happen. That will continue to push the margins. So basically, there is OpEx, there is cost of borrowing and a little bit is the mix towards unsecured. Those are the main components that will get out there. Want to add, Vikas? Just give Vikas one minute. And as we mentioned, we are increasing gold, which is a high yield product, And all this will come at the cost of mortgage product, which is low yielding. Got it. So, basically the mix, not just secured and secured, but also gold, which is secured, but higher yielding and higher margin. Right. Yeah. Correct.

46:17 Got it. And then also last thing, when you look at the the bureau data, are you seeing increasing delinquencies, particularly in lower ticket size notes. And I'm not not referring to any particular product, but across products, lower ticket size, loan sizing, delinquencies and. You saw this very strongly in 2024, right, calendar year '24. You saw the risk increases in the small ticket and not as much risk increases in the large ticket. That sort of shape of risk, which is small tickets are much higher risk than large ticket, that shape has persisted throughout. It has not changed at all. Even today, the small ticket in any product, whether it is CL, HL, lab, just pick any product, doesn't matter.

47:04 As you go up towards higher ticket size, risk is actually decreasing, right? And the smaller tickets risk is quite a lot higher. The situation is a little bit different in gold loans where kind of some of the large end as well risk is increasing. So our risk is higher. So the shape is a little different in gold loans. But apart from that, in every product, smaller ticket is a higher risk. That have been the case. It was very, very cheap in 2024. It's slightly less steep now. Thank you. We have the next question from the line of Nishant Chawate from Kotak. Please go ahead. Hi, Nishant. Hi. Hi, Jallam. Just a short one.

47:53 If I look at your market linked sorry, market rate linked borrowings, so these would largely be linked to repo, right? No, no. We have almost have nothing, which is linked to repo. But repo has a very direct impact on the ten year GSAIC or some of the other rates in the market. Repo is directly linked almost full borrowing. Got it. And MCLR linked, which is I think around onethree, these would largely be linked to one year or one month? It's largely one year, but we have some six months also. Okay. Because when you say that last time around, I know you mentioned that the rate transmission took almost a year and then you took, I think, a couple of months after that to transmit the rates.

48:39 But looking at this profile, it appears that probably the transmission could be much faster this time. Yes. So basically, that last when I say last cycle, I actually mean the down part of the cycle. Down part of the cycle may generally transition takes longer. Up part of the cycle, transmission happens a little bit quicker. So you should expect to see that. Market rates already but the way we are combating it and the way you see many others combating it as well is reduce market linked borrowing. So just in this quarter, almost nothing we have raised from the capital markets because capital markets have directly shown the increase in rates or reflected the increase in rates. So we have basically moved our mix away from market linked towards more NPLR linked, right?

49:24 So this type of mix shift within liabilities is something else that you will expect you should expect NBFCs to do in the coming months. Got it. Got it. Thank you very much. I think that was my question. Thank you. Thank you, Nishanth. Thank you. We have the next question from the line of Anandama from Wealth Management Limited. Please go ahead. Hey. Hi. From results. Hey. I had a question related to ROM. You said that there are multiple levers which will drive the ROEM to about 2.5%. How confident you are now that we have already entered into a rate hike cycle to get to that 2.5% AUM? And one then second is that, you know, for next year, we have a headwind in terms of insurance commission capping. You said that there are mitigants which are available.

50:19 So should we then, in that case, look at a flattish kind of ROAM in FY '28, given that we have a headwind from the insurance commission capping? Or you have a better number to guide over there? Sure. Because you want to take the $2.5 question, and then I'll take the insurance. Okay. All right. Because we've been shy. See, 2.5% in Q4, I we feel fine. I don't think there is much anxiety that we have around it. We feel pretty good, and we have all the levers that we think we need to deliver 2.5% in Q4 of this year. For next year, we have not, of course, offered guidance yet. I did mention the 18 to 24 bps gross impact.

51:07 If we are able to mitigate it somewhat, let's say, of it, we are able to mitigate it. That is still meaningful. Our hope would have otherwise been to actually get pretty close to the 3% number as we exit next year. But now with this, we have to now recalibrate ourselves. Let's see what we come up with. We'll be close enough as we exit the year. I don't know whether we'll get all the way there or not in light of the insurance capping thing. But we'll have specific guidance to offer in Q4. As of now, for the second half of this year, our confidence levels are fairly high. And we have not factored any impact of rate cost of borrowing to come down. Even the rate continues at the current level, we'll convert to achieve 2.5% for the exit Q4 twenty twenty seven. So our cost of borrowing comes Yes, correct.

51:56 Also the insurance capping is a trough yet. It's not still coming to as long policy, so we have to see what happens. Sure. And any initial discussions which I had with regulator and because you also have insurance companies, I'm sure you'll have a better understanding in terms of like where the draft rules could be basically liberalized. Any thoughts for that? Yes. See, we are having conversations at multiple levels with the regulators both both as ourselves, as Piramal Finance, but also as PLI, our life insurance company. So we have had multiple rounds of conversations that we continue to have. We will, of course, also be formally giving in our feedback next week to the regulator as asked for the NVFC industry together is giving a representation as well through FIDC, so we are participating in that as well. So multiple levels of representation are happening. The IRD Chairman has indicated openness to listen to the feedback, and we all saw, I'm sure, his comment that the intent was not to do anything very dramatic or very disruptive.

53:13 So let us see what happens. I mean, guess is as good as ours at this point. Okay. And the current environment is good enough for you to grow into unsecured loans or you believe that maybe you'll just wait and watch and then press the pedal? I mean, thoughts over there? Most of the unsecured loan products that you do, I think. I mean, you've seen us for a while. You know our philosophy on this. We don't take macro costs. We don't take decisions on everyday credit choices because of how the macro looks. We take decisions based on how the micro looks, how each subsegment is looking like from its delinquency trends perspective, etcetera. And based on that, we change our credit risk criteria. Growth is an outcome of our framework. It is not an input to our framework. We are not targeting any growth rate. The growth rate is what it is, depending on what our credit criteria are. As it happens, there is improvement that we are seeing in many sub segments in Unsecured.

54:13 So our credit filtration changes are resulting in higher growth rate in that segment. If tomorrow at the micro segment level, risk starts moving in the other direction, our processes automatically will cut down growth rate. We won't have to make any macro choice in that regard. Sure. And lastly, what percentage of your portfolio will be linked to rural customers directly or like indirectly? And then maybe to the farmers? So we have about 2,300 crores or something in exposure, which is primarily in the rural segment. That's great. Thanks a lot. Thanks. Thank you. We have the next question from the line of Rakesh Kumar from Valantis Advisors.

55:15 Just few questions on the interest rate movement. So firstly, like we have 60% of borrowings on a floating basis 50% so 60% of borrowing on the floating basis and 50% of assets on floating basis. So this difference of 10%, so does that mean that we would increase our lending rate by the higher pace as compared to the increase in the borrowing cost that we are going to have? Absolute value Just look at the absolute value. INR 56,000 crores of assets, which are variable rate and there is 51,000 crores of liabilities, which are variable rate, which essentially means that I have more assets where I can reprice up than liabilities where I will get repriced up.

56:09 So essentially, it's positioned well for a rising rate environment. Secondly, this great rating improvement that we are anticipating and which might be going to happen. In the rising rate scenario, how well we are, you know, positioned, like, with this event happening? So how much really would this help us, you know, kind of in containing the or reducing the kind of borrowing cost? Because the rates are rising, so I don't know how much market will take care of the, you know, credit risk premium changing, you know, with the difference in the credit rating across the institutions?

56:54 Yes. So you see like I'm sure you can just go to Bloomberg and look at our credit risk spread versus any competitor, any kind of AA plus player or AA player, like, pick anybody and look at our spreads over the last few months, and you will see clearly that our spreads have come down. There is no question about it. Our spreads are down 40 basis to 45 basis points over the last few months against any benchmark that you look at. We've shown on Page 17 our incremental cost of borrowing and how it has actually reduced, right? So in a rising rate market, our incremental cost of borrowing is falling. That is happening because our ratings have gotten better, right? And this narrative is likely going to continue. Okay.

57:42 Thirdly, like, the expected change in our borrowing cost vis a vis our competition and, like, you know, and kind of, you know, the kind of, like, breakup that we have on the asset side. So how does this breakup mix, you know you know, putting us vis a vis or as compared to other competition when the rates are rising. Because, you know, the... Any competition, like, you know, which is going to witness, you know, faster or maybe slower rate of change in the borrowing side, they might be slightly better off as compared to you. So any thoughts on that?

58:29 See, I'll reiterate a couple of messages that I mentioned before. A, our variable rate assets are higher in absolute terms than our variable rate liabilities, which means rising rate helps us, right? This is not true for many, many players in the competition. It is true for us. So that helps us. Number two, we have the tailwind of a rating improvement, which essentially means our credit risk spread across practically all competitors, except those who themselves have gotten upgraded, our ratings, our credit spreads are decreasing and will continue to decrease. That is number two. Number three is that our retiring debt is at least 60 basis points higher priced than where we are currently borrowing. This again will not be true for most players in the market. These three tailwinds all help us in a rising rate environment.

59:26 Thank you. Thank you, sir. Thank you. Thank you very much. Ladies and gentlemen, that will be the last question. And with that concludes the question and answer session. I now hand the conference over to mister for the closing comments. Thank you, good everybody. For joining our call. Have a great festive season. Happy to everyone, and enjoy the call, I guess. Bye. Thank you, members of the management. On behalf of Piramal Finance Limited, we conclude this conference. Thank you, everyone, for joining with us today, and you may now disconnect your line.